Mutual Funds: DLJ direct Targets Larger Share of Wallet

Fighting for the loyalty of serious investors, DLJdirect has beefed up its exclusive on-line offering with five proprietary mutual funds managed by top tier money managers from its respected parent company.

In July, the seventh ranked Internet broker quietly rolled out the funds managed by Donaldson, Lufkin & Jenrette s asset management arm Wood, Struthers and Winthrop. Promotion of the offering will be stepped up this fall. The funds offer investors no-fee access to some of the Street s most talented money managers and a suite of funds covering investment themes including growth and income, small company stocks, international equities and developing markets.

Internet innovation

DLJdirect executives acknowledge that innovation in an Internet environment often has a half-life of days to weeks. (E-Trade is already rumored to be readying its own fund offering this fall. A spokesman declined comment.) We fully anticipate that other on-line brokers will eventually offer (proprietary) mutual funds of their own, says DLJdirect s Denise Benou Stires, senior vice president and director of marketing. Nevertheless, we believe that we are delivering an opportunity for our investors that is not easily replicated. That continues to be our strategy: To exploit meaningful and relevant proprietary advantages for the benefit of our investors.

Innovation is a cornerstone of the on-line brokerage company s philosophy. It was among the first to offer access to DLJ s initial public offerings to high-end clients. It continues to offer those same investors access to its respected Wall Street research, a resource once available only to billion-dollar institutional investors.

Those distinctions are important as the number of Internet brokers continues to explode, rising ten-fold from seven players in 1996. Some link the growth of on-line investors to the euphoric rise of the bull market. In one study, Minneapolis-based Piper Jaffray reported an average of 192,000 daily on-line trades in the first quarter, up a robust 25 percent from the fourth quarter of 1997. If the market stalls, observers say marginal players are likely to vanish. It used to be, if you built a site, people would come. Now, firms need to build it, market it, and price it better, says Chris Musto, senior consultant with Gomez Advisors, a Boston-based company specializing in on-line brokerage.

Bill Burnham, an electronic commerce analyst with Credit Suisse First Boston Corp., says the proliferation of new players and plunge in trading fees has placed the emphasis on innovation. DLJ s offering of private label mutual funds is clearly an attempt to take the focus off of pricing and put it on products and services, he said in a statement via e-mail. This makes sense because the only way that it can sustain its $20 price point is to provide a differentiated product set.

For DLJdirect, the strategy of being product pioneers appears to be working. Stires says the firm has 470,000 accounts, up from 340,000 a year ago. Burnham ranks it seventh in market share in terms of average daily trades.

market savvy is focus

Stires, who joined the company after turns in marketing at Swatch and Mars, says the greatest opportunity is to capture a larger share of assets many current customers control. To many people, on-line brokerage is a totally new concept. They will put maybe $25,000 or $50,000 with us to test us and themselves to see if they are good at managing their own money, she says On-line investing is not for everyone.

Though many see Internet brokerage customers as tech savvy, would-be professional traders, Stires says that DLJdirect s customers tend to be more sophisticated about markets with less savvy about PC trading. That trend influences the way she is marketing the company and its first-to- market approach to products and services. Last year, the main marketing battleground was television, says Burnham. This year, the marketing battle has shifted a bit more toward print and Internet advertising. We are going to see direct mail become more important, and we are also going to see affinity relationships and partnerships become increasingly important. The difference between the winners and losers will be how effective firms are in building a variety of customer acquisition channels.

DLJdirect is approaching branding with a mix of marketing approaches. Stires favors using Internet advertising in virtual storefronts at trade-triggering sites offering stock quotes and news. It s one last opportunity to sway the prospective investor to choose our brand prior to making a selection of which on-line brokerage he will join, she says.